Business Leaders Worry About Income Inequality And Revolution

Income inequality must have become a mainstream concern because even businessleaders worry about it. A newly released survey by the Harvard Business School of its alumni about American competitiveness shows that a "troubling divergence in the American economy" could ultimately sink the country's prospects. Even as large corporations, the wealthy, and "highly skilled individuals" prosper, "middle-class and working-class citizens are struggling." So are small businesses, which are an important source of new jobs. The result is a division of the U.S. into two parts, one small and wealthy, the other comprising the vast majority that finds it more difficult to get by as time moves on.

The problem, according to the analysis of what these executives have said, is that to be economically strong, the U.S. must compete in the global economy while supporting and advancing the standard of living for its citizens. The financial results of large corporations show success in the first area. Standards of living are another matter:

Yet on the second goal—high and rising living standards for the average American—any thoughtful look at the data reveals reasons for deep concern. The U.S. economy has structural weaknesses that show up in a host of disturbing, long-run trends. In the lower and middle strata of the income distribution, household incomes have remained stagnant in real terms for decades. Long-run growth rates in private-sector jobs started falling from historical levels around 2000 and remain low. The meager job creation that has occurred has been overwhelmingly in local industries, not those facing international competition. Labor force participation in America peaked in 1997 and has now fallen to levels not seen in three decades. Real hourly wages have stalled even among college-educated Americans; only those with advanced degrees have seen gains. Notably, all of these trends began well before the Great Recession. They are structural, not cyclical.

This is isn't an isolated voice in the dark. Last fall, Dominic Barton, the global managing director for management consultancy McKinsey told the Wall Street Journal that "rising and persistent income inequality" is the biggest challenge to capitalism. Conservative Silicon Valley millionaire publisher Ron Unz has pushed for a $12 an hour minimum wage in his home state of California.

A growing number of people actually in business have begun to take up the issue of income inequality because the social and economic framework of the country is unsustainable. It's not that inequality is by its nature completely bad. For capitalism to work, you need people who can invest in new activity, and a great many individuals have no interest in becoming Masters of the World and are happy as employees or small business owners. But the "little people" need a sense that they are getting something for their labor. When they don't, they get angry. It may even be a hardwired reaction, as primatologist Franz de Waal demonstrated through experiments with monkeys. When a Capuchin monkey perceived that another received a better reward for the same task, the first one would get angry.

Anger builds. Pull enough angry people together and you suddenly have an uncontrollable mob. The growing chasm between those who have and have not is the type of dynamic that often appears before revolutions and the breakdown of civilizations. Think of 18th century France, Russia in the late 1800s and early 1900s, or even ancient Rome.

As billionaire entrepreneur and investor Nick Hanauer suggested in a post on Politico, ugly patterns are already developing. "You show me a highly unequal society, and I will show you a police state," he wrote. "Or an uprising. There are no counterexamples. None. It’s not if, it’s when." And in the latter case, the wealthiest are the ones who will quickly become the targets.

Many wealthy people dismiss the argument, according to Hanauer. But he and other executives who are deeply disturbed about the possibilities are right to be concerned. The issue is not just moral or ethical in nature. It's historically, socially, and economically practical. As society becomes increasingly unstable, it could easily follow the example of any other complex system by violently shifting its dynamics and finding a new stability. Or, as Hanauer puts it:

Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.